Outsourcing Governance: What’s Buzzing and What's Missing?- SirionLabs Webinar

6 December 2016
SPEAKERS
John Dreyer
President and CEO
The Shelby Group
Claude Marais
Co-founder and President
SirionLabs

2© 2012-16 SirionLabs Pte. Ltd. The contents of this presentation are proprietary and confidential.
Agenda
• Why is supplier governance critical in outsourcing engagements?
• Key attributes of effective supplier governance across contract,
performance, financial, risk and relationship management.
• Current capability levels and maturity gaps as reported by your peers for
their governance infrastructure.
• Recommended strategies for success.
Outsourcing Governance: What’s Buzzing and What’s Missing?
Q & A

About Us
SirionLabs’ SaaS product Sirion assists large organizations to manage their
strategic services suppliers (e.g. IT outsourcing, BPO etc.) by extracting the
obligations within contracts and tying the performance of those obligations to
invoices received from suppliers.
For more information, visit www.sirionlabs.com
PORTFOLIO COMPANY
UK Government
G-Cloud Supplier
The Shelby Group is a SirionLabs-Certified Implementation Partner. We help
companies maximize their return on investment in supplier governance platform
investment with expert support for the business process, technical and change
management functions that are critical to success.
For more information, visit www.theshelbygroup.com

Today’s Speakers
Claude Marais, Co-founder & President, SirionLabs
Claude has been a leader in the global sourcing domain for over two decades.
Prior to SirionLabs, Claude pioneered ISG-TPI's supplier governance solution.
During his leadership the practice grew to $11bn in managed TCV. Earlier, Claude
was the global leader for contract management and strategic sourcing in GM's
$3bn/year ITO organization. Before GM, Claude had leadership roles in the
Procurement and IT organizations at The Coca-Cola Company. He is a co-founder
and past National Chair of the Society for Information Management IT
Procurement Working Groups, a founding member of the ICEX Outsourcing
Forum and a Fellow and Honorary Vice Chairman of IACCM.
John Dreyer, President and CEO, The Shelby Group
John’s expertise in finance, technology and business strategy has helped establish
The Shelby Group as a leader in procurement and supply chain optimization. He
works with senior leaders at Shelby’s Global 2000 clients to design innovative
solutions for aligning sourcing, procurement, and supplier governance with C-
suite objectives to drive bottom-line results. Using a combination of data-driven
insight and supplier engagement, John leads his team to reframe relationships
and achieve client objectives for outsourced professional services.

Sources: Gartner, Everest, TPI, Evalueserve, Research and Markets, Zinnov, Global Industry Analysts Inc., Transport Intelligence
• Services procurement has grown significantly while goods spend has declined
over the past two decades
• Governance of services suppliers is fundamentally different from goods
The Rise of Outsourcing (and other complex services)
Goods
Services
Goods
Services
1994 2013
$0.75T
19%
$3.25T
81%
$2.64T
44%
8.21%
CAGR
- 1.09%
CAGR
$3.36T
56%
Goods
Other Services
Complex Services:
IT
Logistics
Facilities
BPO
Goods-as-a-Service
$2.64T
44%
Services
Goods

Why is Governance of Outsourcing Services Complex?
Significant increase in
complexity due to
multi-sourcing, high
deal volumes and short-
duration deals
Traditional governance
technology and processes
are disjointed and
inadequate for managing
complex services
High cost of traditional
governance models is not
sustainable due to budget
constraints and complex
ownership structure
High
Complexity
Ineffective Technology
and Processes
High Cost of
Governance
The emergence of complex services has presented unique challenges for
services buyers resulting in sub-optimal governance environments

Why Supplier Governance Matters | The Bottom Line Impact
20% or more of ACV is lost through contract and business value leakage

“The market is currently under-invested in
the area of vendor management,
particularly when it comes to tools,
methods and processes.”
– Deloitte’s Global Outsourcing and
Insourcing Survey
Houston,
we have
a
problem!
“Poor governance plays a role in
outsourcing failures as much as 62%
of the time.”
- Unpacking Outsourcing Governance -
CEB, IACCM, University of Tennessee
“63% of companies
surveyed believe
they lose an average
of 25% of contract
value due to poor
governance.”
– International
Association of Outsourcing
Professionals (IAOP)

What is Value Leakage?
Value Leakage is the difference between the value of what is expected at the
time of contracting and what is actually delivered over the course of an
outsourced services engagement.

CONTRACT VALUE LEAKAGE
• Invoicing errors & inaccuracies
• Quality and delivery failures
• Unrealized discounts
• Earnbacks
BUSINESS VALUE LEAKAGE
• Poor user/customer experience
• Business disruption
• Rogue workarounds
• Negative brand impact
• Unrealized performance gains
• Unrealized efficiency gains
Key Causes of Value Leakage

Key Disciplines for Effective Governance
Most experts generally agree on the following as the core processes for effective
governance of outsourcing and other complex services engagements

Between September 2015 and March
2016, The Shelby Group and SirionLabs
conducted an industry survey to better
understand the current state of
outsourcing governance capabilities.
The following section presents the key
insights from the study.

Survey Respondent Profiles
Respondents By Revenue
Respondents By IndustryRespondents By Function

The Importance that the
respondent ascribes to
each of these processes for
driving higher value in
outsourced services
engagements.
The current level of
maturity at the
respondent’s organization
for each of these
processes.
Questions
Respondents were asked to rate individual processes under each of the 5 governance disciplines
(Contract, Performance, Financial, Relationship and Risk Management) on 2 parameters.
Question Example
Document Repository - The ability to digitally maintain and manage the latest versions of contract and related documents
in a centralized location.
Q. How important is this for effective governance?
Q. How mature are your current capabilities?

Importance Ascribed by Function
How do perceptions of the importance of supplier governance disciplines vary by
function?

The Bottom Line of Gaps
The survey showed significant gaps between the ascribed importance and
current capabilities for all supplier governance disciplines.

Survey Results | Contract Management
CONTRACT
MANAGEMENT
Create a granular view of 'what was
supposed to happen' by managing
contracts at the obligation level.
According to a report in the Journal of Contract Management, 71 percent of companies
couldn't find at least 10 percent of their contracts.

Survey Results | Contract Management
• 86% of respondents consider Document Repository as Critical or Important, 37% rated current
capabilities as Basic or Non-existent
• 86% of respondents consider Obligation Capture to be Critical or Important, 47% rated their
existing capabilities as weak (Poor/Basic or Non existent)
• 81% consider Contract Interpretation to be Critical or Important, 43% rated their current
capabilities as Poor/Basic or Non-existent

Survey Results | Performance Management
PERFORMANCE
MANAGEMENT
Track 'what actually happened' at
granular level with auto-reconciliation
of performance data against contractual
obligations.
Industry research shows that 66% of suppliers believe they meet service levels more
than 90 percent of the time, while only 40 percent of service consumers think that
same service level is met.

• 92% of respondents consider Service Level Management as Critical or Important, 40% reported
current capabilities as weak (Poor/Basic or Non existent)
• 84% of respondents rated Obligation Compliance as Critical or Important, 42% reported their
existing capabilities as Poor/Basic or Non existent
• 80% consider SOW/WO/PO Management to be Critical or Important, more than 50% rated their
current capabilities as Poor/Basic or Non existent
Survey Results | Performance Management

Survey Results | Financial Management
FINANCIAL
MANAGEMENT
Combine ‘hard savings’ realized from
automated invoice reconciliation with
dynamic value assurance against the
business case.
The 8-12% hard value leakage indicates that majority of the stakeholders are not aware
of the financial leakage that happens in their contracts.

• 82% of respondents rated Financial Analysis and Planning as Critical or Important, 57% reported
Poor or Non-existent capability
• 85% respondents consider Invoice Auditing as Critical or Important, 37% rated current capabilities
as Poor/Basic or Non-existent
Survey Results | Financial Management

Survey Results | Relationship Management
RELATIONSHIP
MANAGEMENT
Align supplier and governance
organizations on an intuitive interface
to manage and track all key relationship
activities, processes and metrics.
According to a PwC study, only 13% companies reported an established SRM program,
while the rest have SRM programs in the exploratory stage or none at all.

• 77% of respondents rated Issue and Action Item Management as Critical or Important, 71%
rated their current capability as less than Adequate
• 74% of respondents rated 360° Surveys as Critical or Important, 83% rated their current
capability as less than Adequate
Survey Results | Relationship Management

Survey Results | Risk Management
RISK
MANAGEMENT
Predict and control key supplier risks
arising from contractual, performance
and regulatory compliance on a unified
scorecard.
As per IACCM research, the traditional “risk avoidance” approach to contracting is being increasingly
questioned and the focus is shifting away from avoiding potentially risky relationships to managing
those relationships closely to ensure the full benefit of the contract is recognized.

• 87% of respondents consider Regulatory Compliance as Critical or Important, 44% reported less
than Adequate current capability
• Respondents reported higher capability maturity in Due Diligence and Supplier audits than in the
ability to manage Policy and Regulatory Compliance
Survey Results | Risk Management

Key Concepts & Takeaways
Brute-force attempts at achieving contractual cost savings from suppliers backfire
and a balanced approach yields better overall results in the long term.

It takes management of all
elements of flight to keep a
plane in the air. Effective
supplier management is no
different.

To address the problem, executives must move beyond an
enforcement mindset to enable opportunities for value creation that
yield benefits for all stakeholders involved in the value chain.

Supplier relationship management and performance management, within
which the greatest capability gaps exist, need to be viewed from a partnership
perspective.

Buyers and sellers need access to a common source of truth in near real
time with regard to accountability for performance and value creation.

Bridging the Gap | What’s Needed
• Integration of all key supplier governance disciplines on a single platform
• Configurable workflows for all key processes to automate high-volume activities
like performance and invoice validation
• Advanced analytics and predictive insights in client-supplier relationships
• Foster a mindset of balance for all aspects of supplier governance

Thank You!

Outsourcing Governance: What’s Buzzing and What's Missing?- SirionLabs Webinar

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